TREASURY BASICS
What is a Treasury Bond?
Loan made to the U.S. Government
Which Treasury security matures in less than one year?
Treasure Bill (T-Bill)
What would happen to existing bond prices when interest rates fall?
Bond prices would rise
What is a Treasury Yield?
The return investors earn from holding a Treasury Security.
Would a retiree looking for a stable income choose treasury bonds or stocks? Why?
Treasury Bonds - Stocks returns are uncertain and depend on the performance of market, while Treasury Bonds provide predetermined interest payments (coupon) and return of principal at maturity.
Who issues the Treasury Bonds?
U.S. Government / U.S. Treasury
What is the range of maturity for Treasury Notes?
2 - 10 years
If interest rates were to fall, what would happen to existing bond prices?
They would rise.
Why is the Treasury Yield important for banks?
They are a baseline for setting interest rates.
If Treasury yield rises, who would benefit more: those who saved, or those who borrowed?
Those who saved.
What are 2 ways investors make money from Treasury bonds?
- Interest payments (biannually)
- repayment of principal at maturity
What is the maturity range of Treasury Bonds?
20-30 years
What is one reason why investors might opt for newly issued bonds if interest rates were to increase?
They would offer higher payments (coupon)
If Treasury yields were to rise, what would often happen to mortgage rates?
They would tend to rise.
What occurs to borrowing costs if the government must pay higher yields on new debt?
What makes treasury bonds to be considered "low risk"?
The U.S. Government backs them
Treasury Bonds
A bond pays at 3%, but the new bond pays at 5%. What is likely to happen to the value of the older bond?
It is likely to fall/decrease.
What is a reason homeowners would suffer from a rise in Treasury Yield?
Fewer homes become affordable, mortgage rates increase, and more is paid per month for homes.
True or False: Treasury yields can affect car loan rates?
True
It is the date when the bond's principal is repaid
If an investor wants to lend money to the government for 6 months, which Treasury would they likely buy?
A Treasury Bill
Throughout the bond market, what is the most important relationship to remember?
Interest Rates and Bond Prices move in opposite directions. So when one increases, the other decreases.
True or False: Investors are the ones affected by Treasury Bonds.
False: They influence mortgage rates and borrowing costs for all people.
An investor buys a $17,000 Treasury bond that pays 4% annually. If they hold it for 30 years, how much total will they have made after maturity?
$37,400 total